Stocks across the world tumbled early Monday after a shocking all-out oil price war added to anxiety around the economic fallout from the spreading coronavirus.
Futures on the Dow Jones Industrial Average indicated an opening drop of more than 1,300 points. The S&P 500 futures indicated a 5 percent drop at Monday’s open. The S&P futures trading was briefly halted overnight. The sharp declines in the futures market signaled more turbulence ahead after a roller-coaster week that saw the S&P 500 swing up or down more than 2.5 percent for four days straight.
The massive sell-off could trigger key market circuit breakers during regular trading hours.
Amid the market turmoil, investors continued to seek safer assets amid additional fears that the coronavirus will disrupt global supply chains and tip the economy into a recession. The yield on the benchmark 10-year Treasury note dropped below 0.5 percent for the first time ever, while the 30-year rate breached 1 percent.
Oil prices plunged more than 20 percent after OPEC’s failure to strike a deal with its allies regarding production cuts caused Saudi Arabia to slash its prices as it reportedly gets set to ramp up production.
The Saudi price cut followed a breakdown of talks in Vienna last week. On Thursday, OPEC recommended additional production cuts of 1.5 million barrels per day starting in April but OPEC ally Russia rejected the additional cuts. With no deal in place when the current one expires at the end of the month, producers could soon pump as much oil as they want.
“Crude has become a bigger problem for markets than the coronavirus,” Adam Crisafulli, founder of Vital Knowledge, said Sunday. “It will be virtually impossible for the [S&P 500] to sustainably bounce if Brent continues to crater,” he added.
Investors have already been on edge about the coronavirus outbreak that caused major stock averages to tumble into correction territory. As of Sunday, global cases of the infections have climbed to more than 109,000 with at least 3,801 deaths around the world. The situation is also worsening in the U.S. with New York, California and Oregon all declaring a state of emergency.
“The idea that lower gasoline prices is going to put more cash in workers’ pockets and give consumer spending and the economy a boost doesn’t seem to cushion the blow for stock market investors,” Chris Rupkey, MUFG Union Bank’s chief financial economist, said in a note Sunday.
“They want out. Big time. The sky is falling. Get out, get out while you can. Wall Street’s woes have to eventually hit Main Street’s economy hard.”
Gold, another safe-haven asset, crossed $1,700 an ounce, hitting its highest level since Dec. 2012. Meanwhile, copper prices hit a more than three-year low of $2.46. Copper is seen as a barometer of broad economic demand given its applications in electrical equipment and manufacturing.
The Federal Reserve announced an emergency rate cut last week to combat the economic impact from the virus, its first such move since the financial crisis. President Donald Trump on Friday signed a sweeping spending bill of a$8.3 billion packageto aid medical research. Wall Street expects more stimulus from global central banks and governments to prevent a recession.
The S&P 500 has fallen 8 percent this year after suffering its worst week since the financial crisis at the end of February. The benchmark is down more than 12 percent from its recent peak.
Pippa Stevens, CNBC contributed.